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4000 - Advisory Opinions

Insurance Coverage of Deposits for Which Insured Institution Acts as Fiscal Agent for Department of Treasury in Disbursing Social Security and Other Income to Recipients


June 28, 1993

Joseph A. DiNuzzo, Senior Attorney

This is in response to your letter of May 27, 1993, to Claude A. Rollin, Counsel, FDIC Legal Division, on the insurance coverage of deposits for which [Bank] acts as the fiscal agent for the Financial Management Service of the United States Department of the Treasury ("Treasury") in connection with the Houston Pilot EBT Program ("Program").

According to the information in your letter: the Program disburses social security and other income to individual recipients through electronic delivery systems in the Houston area; the Treasury credits funds to [Bank], which [Bank] places in an omnibus account (maintained exclusively for this purpose) in [Bank]'s name; [Bank] has established subaccounts for each individual benefit recipient in the Program; when the Treasury credits funds to [Bank], it advises [Bank] of the amount designated for each recipient; [Bank] credits the appropriate amount to each subaccount when it receives the funds from the Treasury and makes the appropriate debits to the subaccount when the recipients make withdrawals; and [Bank]'s records indicate that it holds the funds in the omnibus account solely for the benefit of the individual recipients and at all times [Bank]'s subaccount records indicate the amount available to each recipient.

You also note that the subaccounts are more limited than standard deposit accounts in that no other deposits are accepted for or credited to the subaccounts and an electronic access card (used at automated teller machines and point-of-service devices) is the only method by which withdrawals may be made.

The current section 330.10 of the FDIC's regulations (12 C.F.R. 330.10) states that "funds held by an insured depository institution in an agency or other fiduciary capacity . . . shall be insured up to $100,000 for each owner or beneficiary represented." It also states that "[t]his insurance shall be separate from, and in addition to, the insurance provided for any other deposits of the owners or the beneficiaries." (12 C.F.R. 330.10.) This separate insurance derives from section 7(i) of the Federal Deposit Insurance Act (12 U.S.C. 1817(i)).

Based on the information provided in your letter, it seems that [Bank] is acting as agent for each of the recipients and that the manner in which the funds are maintained satisfies the applicable recordkeeping requirements under section 330.4 of the FDIC's regulations (12 C.F.R. 330.4) for the recognition of the deposit ownership interests of the recipients. (As to the recordkeeping requirements, however, it must be clear from the "deposit account records" of the institution that [Bank] is acting in a fiduciary capacity.) Thus, each recipient would be insured up to $100,000 corresponding to the respective amounts maintained by [Bank] (in the omnibus and subaccounts) for each such individual. The insurance would be separate from the insurance afforded to deposits owned by each recipient in different rights and capacities (including his or her individual capacity) at the same insured institution. This "separate insurance" aspect of the law (and insurance determination) will change, however, starting December 19, 1993.

The FDIC Improvement Act of 1991 (Pub. L. 102--242, 105 Stat. 2236) made several deposit-related revisions to the FDI Act. One revision was to limit the scope of section 7(i) of the FDI Act to situations where a depository institution is acting as a trustee of an irrevocable trust. Only then will the insurance afforded in connection with the applicable deposits be separately insured from other deposits held in the same institution by or for the same party in a trust or agency capacity. Thus, beginning December 19, 1993, Program funds maintained for the recipients described in your letter will be aggregated with any other deposits held by or for the recipient (at the same institution) in an individual capacity and insured to an aggregate of $100,000. The applicable regulatory provision on the coverage of these deposits will be section 330.6 of the FDIC's regulations, which provides for the insurance of funds maintained by an agent. A copy of the FDIC's revised insurance regulations (including the revised section 330.10 to become effective December 19, 1993) is enclosed.

I hope this letter is fully responsive to your inquiry. Feel free to call me at (202) 898-7349 with any additional questions or comments.

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